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Inergy, L.P. is a publicly-traded Delaware limited partnership formed in March 2001. We own and operate energy midstream infrastructure and an NGL marketing, supply and logistics business. We are headquartered in Kansas City, Missouri, and our common units representing limited partner interests are listed on the New York Stock Exchange under the symbol â€śNRGYâ€ť.

Our midstream infrastructure business consists of storage and transportation operations, which are conducted primarily through Inergy Midstream, L.P. ("Inergy Midstream"), a predominantly fee-based, growth-oriented master limited partnership that develops, acquires, owns and operates natural gas and NGL storage and transportation infrastructure. Our NGL marketing, supply and logistics business utilizes our West Coast processing, fractionation and storage operations and other NGL facilities that we own or control. We have two reporting segments: (i) storage and transportation, which includes our natural gas storage assets in Texas and our approximately 75% ownership interest and incentive distribution rights ("IDRs") in Inergy Midstream (NYSE: NRGM); and (ii) NGL marketing, supply and logistics operations.

On August 1, 2012, we completed the contribution of our retail propane operations to Suburban Propane Partners, L.P. ("SPH"). We received approximately 14.2 million SPH common units with a market and book value of approximately $590 million, substantially all of which we distributed to our unitholders in September 2012. SPH also exchanged approximately $1.19 billion of our outstanding senior notes for $1.0 billion of new SPH senior notes and paid cash directly to tendering note holders. As a result of this transaction, we have repositioned our company to create a pure-play midstream company and deleveraged our balance sheet.

Our primary business objective is to increase the cash distributions that we pay to our unitholders. We expect to increase our cash flow that may be distributed to unitholders predominantly through our investment in Inergy Midstream (including our ownership of Inergy Midstream's IDRs) and, to a lesser extent, by growing our existing natural gas and NGL businesses.

On November 3, 2012, Inergy Midstream entered into an agreement to acquire Rangeland Energy, LLC (â€śRangeland Energyâ€ť) for $425 million, subject to certain performance goals and working capital adjustments. Rangeland Energy owns and operates an integrated crude oil rail and truck terminal, storage and pipeline facilities (the â€śCOLT Hubâ€ť) located in Williams County, North Dakota in the heart of the Bakken and Three Forks shale oil-producing region. The Colt Hub primarily consists of 720,000 barrels of crude oil storage, two 8,700-foot unit train rail loading loops, an eight-bay truck unloading rack, and 21-mile bi-directional crude oil pipeline that connects the terminal to crude oil gathering systems and crude oil interstate pipelines. We expect Inergy Midstream to complete the Rangeland Energy acquisition in calendar 2012.

Ownership Structure

We formed Inergy Midstream, LLC in 2004 to develop, acquire, own and operate natural gas and other midstream assets. In November 2011, we converted Inergy Midstream, LLC into a Delaware limited partnership named Inergy Midstream, L.P. On December 21, 2011, Inergy Midstream completed its initial public offering.

We own and operate the Tres Palacios natural gas storage facility, a high performance, multi-cycle salt dome storage facility located approximately 100 miles outside of Houston in Matagorda and Wharton Counties, Texas. Tres Palacios, which is owned and operated by our subsidiary, Tres Palacios Gas Storage LLC ("TPGS"), has approximately 38.4 Bcf of certificated working gas capacity and is expandable by up to an additional 9.5 Bcf of working gas capacity. Tres Palacios is connected to 10 intrastate and interstate pipelines offering connectivity to multiple demand markets in Texas as well as the Northeast, Midwest, Southeast and Florida. Tres Palacios has placed three storage caverns into service, and we expect to place a fourth cavern into service in 2015. As of September 30, 2012, 83% of Tres Palacios's available storage capacity is contracted on a firm or interruptible basis. We acquired this storage facility on October 14, 2010.

We own an approximate 75% limited partnership interest and all the IDRs in Inergy Midstream. Inergy Midstream owns and operates four high-performance natural gas storage facilities located in New York and Pennsylvania that have an aggregate working gas storage capacity of approximately 41.0 Bcf, which we believe makes Inergy Midstream the largest independent natural gas storage provider in the Northeast. Its storage facilities have low maintenance costs, long useful lives and comparatively high cycling capabilities. The interconnectivity of its storage facilities with interstate pipelines offers flexibility to shippers in the Northeast, and the facilities are located in close proximity to the Northeast demand market and a prolific supply source, the Marcellus shale. Inergy Midstream's natural gas storage facilities, all of which generate fee-based revenues, include:

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Stagecoach , a multi-cycle, depleted reservoir storage facility located approximately 150 miles northwest of New York City in Tioga County, New York and Bradford County, Pennsylvania. Stagecoach, which is owned and operated by Central New York Oil And Gas Company, L.L.C. ("CNYOG"), has 26.25 Bcf of certificated working gas capacity. Its 24-mile, 30-inch diameter south pipeline lateral connects the storage facility to Tennessee Gas Pipeline's ("TGP") 300 Line, and its 10-mile, 20-inch diameter north pipeline lateral connects to the Millennium Pipeline ("Millennium"). As of September 30, 2012, 100% of Stagecoach's available storage capacity is contracted;

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Thomas Corners , a multi-cycle, depleted reservoir storage facility in Steuben County, New York. Thomas Corners, which is owned and operated by Arlington Storage Company, LLC ("ASC"), has 7.0 Bcf of certificated working gas capacity. Its 8-mile, 12-inch diameter pipeline lateral connects the storage facility to TGP's 400 Line, and its 7.5-mile, 8-inch diameter pipeline lateral connects to Millennium. As of September 30, 2012, 100% of Thomas Corners' available storage capacity is contracted;

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Steuben , a single-turn, depleted reservoir storage facility in Schuyler County, New York. Steuben, which is owned and operated by Steuben Gas Storage Company ("Steuben Gas Storage"), has 6.2 Bcf of certificated working gas capacity. Its 12.5-mile, 12-inch diameter pipeline lateral connects the storage facility to the Dominion Transmission Inc. ("Dominion") system, and a 6-inch diameter pipeline measuring less than one mile connects Inergy Midstream's Steuben and Thomas Corners storage facilities. As of September 30, 2012, 100% of Steuben's available storage capacity is contracted; and

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Seneca Lake , a multi-cycle, bedded salt storage facility in Schuyler County, New York. Seneca Lake, which is owned and operated by ASC, has 1.45 Bcf of certificated working gas capacity. Its 19-mile, 16-inch diameter pipeline lateral connects the storage facility to Millennium and Dominion's system. Inergy Midstream acquired the Seneca Lake facility from New York State Electric & Gas Corporation ("NYSEG") on July 13, 2011. As of September 30, 2012, 100% of Seneca Lake's available storage capacity is contracted.

Inergy Midstream also owns and operates the Bath storage facility, a 1.5 million barrel NGL storage facility located near Bath, New York. The facility is located approximately 210 miles northwest of New York City. It is supported by both rail and truck terminal facilities capable of loading and unloading 23 railcars per day and approximately 70 truck transports per day. The Bath storage facility generates fee-based revenues, and as of September 30, 2012, we control 100% of its available storage under a five-year contract expiring in 2016.

Inergy Midstream also owns and operates gas transportation facilities located in New York and Pennsylvania. These facilities have low maintenance costs and long useful lives, and they are located in or near the Marcellus shale. Throughput on Inergy Midstream's transportation assets can also be expanded at relatively low capital costs. Inergy Midstream's natural gas transportation facilities include:

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North-South Facilities , which include compression and appurtenant facilities installed to expand transportation capacity on the Stagecoach north and south pipeline laterals. The bi-directional facilities, which are owned and operated by CNYOG, provide 325 MMcf/d of firm interstate transportation service to shippers. The North-South Facilities, which were placed into service on December 1, 2011, generate fee-based revenues under a negotiated rate structure authorized by the FERC;

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MARC I Pipeline , a 39-mile, 30-inch diameter interstate natural gas pipeline that connects the Stagecoach south lateral and TGP's 300 Line in Bradford County, Pennsylvania, with Transcontinental Gas Pipe Line Company, LLC's ("Transco") Leidy Line in Lycoming County, Pennsylvania. The bi-directional pipeline, which is owned and operated by CNYOG, will provide 550 MMcf/d of interstate transportation capacity. It includes a 16,360 horsepower gas-fired compressor station in the vicinity of the Transco interconnection, and a 15,000 horsepower electric-powered compressor station at the proposed interconnection between the Stagecoach south lateral and TGP's 300 Line. Inergy Midstream expects to place the MARC I Pipeline into service on December 1, 2012, and it will generate fee-based revenues under a negotiated rate structure authorized by the FERC; and

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East Pipeline , a 37.5 mile, 12-inch diameter natural gas intrastate pipeline located in New York which transports 30 MMcf/d of natural gas from Dominion to the Binghamton, New York city gate. The pipeline, which is owned and operated by Inergy Pipeline East, LLC ("IPE"), runs within three miles of the Stagecoach north lateral's point of interconnection with Millennium. The East Pipeline generates fee-based revenues under a negotiated rate structure authorized by the New York State Public Service Commission ("NYPSC"). Inergy Midstream acquired the East Pipeline (formerly known as the Seneca Lake east pipeline) from NYSEG on July 13, 2011 as part of its acquisition of the Seneca Lake natural gas storage facility.

In addition, Inergy Midstream owns US Salt, an industry-leading solution mining and salt production company located on the shores of Seneca Lake near Watkins Glen in Schuyler County, New York. US Salt is strategically located in close proximity to Inergy Midstream's Seneca Lake natural gas storage facility and Watkins Glen NGL storage development project. It is one of five major solution mined salt manufacturers in the United States, producing evaporated salt products for food, industrial, pharmaceutical and water conditioning uses. US Salt produces and sells more than 300,000 tons of evaporated salt each year, and the solution mining process used by US Salt creates salt caverns that can be converted into natural gas and NGL storage capacity.

NGL Marketing, Supply and Logistics

We own and operate an NGL business located near Bakersfield, California, which includes a 24.0 million gallon NGL storage facility, a 25.0 MMcf/day natural gas processing plant, a 12,000 barrels per day NGL fractionation plant, an 8,000 barrels per day butane isomerization plant, and NGL rail and truck terminals. Our West Coast operations provide NGL processing, storage, transportation and marketing services to producers, refiners and other customers.

We own and operate the Seymour storage facility, which has 21 million gallons of underground NGL storage capacity and 1.2 million gallons of aboveground â€śbulletâ€ť storage capacity. Located in Seymour, Indiana, the facility's receipts and deliveries are supported by TE Products Pipeline ("TEPPCO") pipeline and truck access.

We also own and operate a wholesale supply, marketing and logistics business providing NGL procurement, transportation and supply and price risk management services to independent dealers, multistate marketers, petrochemical companies, refinery and gas processors and a number of other NGL marketing and distribution companies.

Our NGL marketing, supply and logistics operations include a truck fleet, truck terminals and truck maintenance facilities. The transportation of NGLs requires specialized equipment, and our trucks carry specialized steel tanks that maintain NGLs in a liquefied state. As of September 30, 2012, we own (i) a fleet of 275 tractors and 452 transports; (ii) terminal facilities including the South Jersey Terminal in Bridgeton, New Jersey, and (iii) truck maintenance facilities in Indiana, Ohio and Mississippi.

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NGL storage - effective January 1, 2012, we acquired a â€ścallâ€ť right that enables us to store NGLs in certain storage caverns in service today near our Tres Palacios facility, as well as rights of first use for new NGL storage caverns developed on certain properties on the Markham salt dome. We expect to utilize these rights as greater volumes of NGLs are produced from the Eagle Ford shale and other plays in and around Texas, and we are pursuing commercial opportunities using caverns subject to our NGL storage rights.

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System enhancements - we are working to extend the Tres Palacios header system by approximately 20 miles to interconnect with Copano's Houston Central gas processing plant in Colorado County, Texas. This extension is expected to allow shippers to move gas along 60 miles of large-diameter header pipe with access to a combination of 10 interstate and intrastate pipelines and the Tres Palacios facility. We expect to receive this year the FERC authorization necessary to commence construction, and we plan to complete the expansion project in calendar 2013. We believe our customers will continue to support projects that enhance connectivity and offer greater storage and transportation services.

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Natural gas expansions - Texas Brine, which leases to us the mineral and surface rights we rely upon to operate the Tres Palacios storage facility, is debrining a fourth cavern located in close proximity to Tres Palacios' existing three natural gas storage caverns. We expect to place this fourth cavern into natural gas storage service after the cavern is converted from brine production into storage service. However, because this fourth cavern may be converted into NGL storage capacity, we have the flexibility to pursue the type of storage capacity that the market demands the most.

Inergy Midstream is pursuing numerous projects, including both expansions and greenfield development projects, designed to further build out and interconnect its platform of Northeast natural gas and NGL assets, which we expect to increase its operating scale and enhance our profitability.

MARC I Pipeline

In August 2010, Inergy Midstream requested FERC authorization to construct, own and operate the MARC I Pipeline, a 39-mile bi-directional interstate natural gas pipeline that runs through Bradford, Sullivan and Lycoming Counties, Pennsylvania. Before doing so, Inergy Midstream entered into binding precedent agreements with four shippers under which they agreed to subscribe for 550 MMcf/d of firm transportation service on the MARC I Pipeline for a period of 10 years. At that time, Inergy Midstream expected to receive a FERC certificate order authorizing its pipeline by mid-summer 2011 and to place the pipeline into service by July 2012. Inergy Midstream's development plans have taken longer than anticipated due to regulatory delays and legal challenges, however, and the MARC I Pipeline is scheduled to be placed into service on December 1, 2012. As of September 30, 2012, Inergy Midstream has incurred aggregate capital costs of approximately $213.5 million for development and construction of the MARC I Pipeline.

In October 2012, the MARC I shippers requested that their volumetric commitments be reduced from 550 MMcf/d to 450 MMcf/d. Under Inergy Midstream's precedent agreements, the shippers could terminate their contractual obligations if the pipeline was not placed into service on or before October 1, 2012. In October 2012, Inergy Midstream executed agreements with the MARC I shippers under which, among other things, (i) the shippers' volumetric requirements were permanently reduced from 550 MMcf/d to 450 MMcf/d and (ii) the shippers agreed not to terminate their contracts if the MARC I Pipeline is placed into service on or before January 1, 2013. Inergy Midstream has received FERC authorization to place the pipeline into interim service and is working to complete the final commissioning activity before requesting FERC authorization to place the pipeline into full commercial service on December 1, 2012. Inergy Midstream expects to sell all or substantially all of the 100 MMcf/d of turned-back capacity at or near rates payable by the releasing MARC I shippers. If Inergy Midstream is unable to sell any such capacity on a firm basis under long-term contracts, then it expects to sell the capacity on an interruptible basis until market conditions support the execution of long-term contracts at acceptable rates.

Watkins Glen NGL Storage Development Project

Inergy Midstream is developing a 2.1 million barrel NGL storage facility near Watkins Glen, New York, using existing cavern capacity created by US Salt's solution-mining process. Propane and butane are expected to be stored in these caverns seasonally. The facility will be supported by rail and truck terminal facilities capable of loading and unloading 32 railcars per day and 45 truck transports per day, and will connect with TEPPCO's NGL interstate pipeline. Inergy Midstream has entered into a five-year contract with us under which we will effectively market the facility's storage capacity for Inergy Midstream's economic benefit under a pass-through revenue arrangement.

Inergy Midstream filed an application with the New York State Department of Environmental Conservation ("NYSDEC") for an underground storage permit in October 2009, and it has encountered delays in the permitting process. Inergy Midstream believes it has provided all of the information the NYSDEC requires to issue the requested permit, and it expects to receive the requested permit early next year. Subject to receiving the requested permit and barring any other unexpected delays, it expects to construct and place into service the NGL storage facility within 120 days after receiving its underground storage permit. As of September 30, 2012, Inergy Midstream has incurred approximately $44.9 million of aggregate capital costs for the Watkins Glen NGL storage development project.

Truck Rack Expansion and Upgrade

In November 2012, Inergy Midstream completed construction of a new truck loading and unloading facilities at its Bath NGL storage facility. The new truck rack has two bays and arms capable of loading and unloading 70 trucks per day. Inergy Midstream is also upgrading the existing truck rack to increase the rack's loading and unloading capabilities from 17 trucks to 30 trucks per day, which it expects to complete in December 2012. Upon completion of the upgrade, Inergy Midstream's truck racks at the Bath facility are expected to be able to load and unload up to 100 trucks per day. As of September 30, 2012, Inergy Midstream has incurred approximately $0.9 million of total capital costs for this project. The affiliate that utilizes and markets all of the Bath storage capacity, Inergy Services, will pay higher annual reservation fees as a result of the new truck rack.

Commonwealth Pipeline Project

In February 2012, Inergy Midstream announced plans to jointly market and develop a new interstate natural gas pipeline project with affiliates of UGI Corporation and WGL Holdings, Inc. The Commonwealth Pipeline project is designed to provide a direct, cost-effective basis for moving Marcellus shale gas to growing natural gas demand markets in southeastern Pennsylvania and the Mid-Atlantic markets. The project sponsors held a non-binding open season for capacity on the Commonwealth Pipeline late in the second quarter of calendar 2012. Based on the results of the open season and subsequent discussions with potential shippers, the project sponsors on September 20, 2012 announced that, among other things, (i) the pipeline is expected to run approximately 120 miles to the southern terminus of Inergy Midstream's MARC I Pipeline to a point of interconnection with several interstate pipelines in Chester County, Pennsylvania; (ii) the 30-inch diameter pipeline will have an initial capacity of 800 MMcf/d of natural gas; (iii) affiliates of UGI Corporation and WGL Holdings have entered into binding precedent agreements to subscribe for firm transportation service on the Commonwealth Pipeline at negotiated rates under 10-year contracts; and (iv) the sponsors expect to place the pipeline into service in 2015.

The project sponsors are continuing to refine costs, route options and other information required to complete a feasibility study, and assess market demand for the proposed transportation capacity. Inergy Midstream remains optimistic that the market will support this low-cost transportation option for providing a direct path for moving local Marcellus shale gas to local demand centers, although we can provide no assurances that this project will be placed into service.

Seneca Lake Expansion (Gallery 2)

Throughout fiscal 2012, Inergy Midstream continued to perform pre-construction activity and pursue the regulatory approvals required to expand the working gas capacity of its Seneca Lake natural gas storage facility by approximately 0.5 Bcf. Inergy Midstream estimates the total capital cost of this expansion to be approximately $3.0 million . Inergy Midstream has filed an application with the NYSDEC for the underground storage permit required to debrine and inject natural gas into the cavern. Upon receipt of the underground storage permit, Inergy Midstream will request FERC authorization to place the expansion capacity into natural gas storage service. Inergy Midstream expects to place this expansion capacity into service in the second half of calendar 2013.

North-South II Expansion and Extension

In September 2011, Inergy Midstream held a non-binding open season to gauge shipper interest in its North-South II expansion project, which involved the installation of pipeline, compression and other facilities to enable shippers to move higher volumes of natural gas on a firm basis through the Stagecoach laterals from TGP's 300 Line to Millennium, and all points in between. As part of this project, Inergy Midstream would (i) extend its Stagecoach north lateral approximately three miles to interconnect with the East Pipeline, which would enable shippers to transport volumes from TGP's 300 Line (as well as intermediate points, including Millennium) to the point of interconnection between the East Pipeline and Dominion's system in Tompkins County, New York, and (ii) expand the capacity of the Stagecoach laterals, by installing additional compression or looping, to enable shippers to move higher volumes over the existing pipeline route of the North-South Facilities. Inergy Midstream believes the market will desire additional transportation flexibility provided by this project and is continuing both its commercial discussions with potential shippers and its efforts to acquire the land rights necessary to complete the three-mile extension of the Stagecoach north lateral, although we can provide no assurances that this project will be placed into service.

Other Growth Projects

In May 2012, Inergy Midstream connected its Seneca Lake natural gas storage facility to Millennium. Inergy Midstream installed this interconnection at a total capital cost of approximately $7.4 million. This interconnection provides Inergy Midstream's storage customers with greater takeaway and delivery options, which it believes will translate into greater revenues from higher storage rates and increased wheeling services.

Inergy Midstream has identified existing salt caverns on US Salt's property that it believes can be converted into natural gas and NGL storage capacity. This storage capacity is in addition to the caverns designated for NGL storage by the Watkins Glen NGL storage development project and the expansion of the Seneca Lake natural gas storage facility by approximately 0.5 Bcf. In the normal course of Inergy Midstream's business, it periodically reviews cavern information to assess whether caverns are potential candidates for natural gas or NGL storage conversion, evaluates whether market demand would support developing incremental storage services, and discusses storage opportunities with potential customers. Inergy Midstream continues to believe the market will require additional natural gas and NGL storage capacity in the Northeast to help satisfy growing demand, and it believes its solution-mined caverns will be able to provide cost-effective solutions.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a publicly-traded master limited partnership that owns and operates energy midstream infrastructure and an NGL marketing, supply and logistics business. We own and operate the Tres Palacios natural gas storage facility in Texas; a proprietary NGL business that specializes in providing logistics and marketing services predominantly to producers and refiners; and approximately 75% ownership interest in Inergy Midstream, a publicly-traded, growth-oriented master limited partnership with midstream facilities located in the Northeast region of the United States.

Our Company

With the disposition of our retail propane business in August 2012, we have transformed our company into a â€śpure playâ€ť midstream energy company with significant investments in the natural gas and NGL sectors of the energy value chain. Our Tres Palacios facility is located near the liquids-rich Eagle Ford shale play and Texas demand markets, and through Inergy Midstream, we have significant investments in natural gas storage and transportation facilities located near the Marcellus shale play and the Northeast demand market. We believe our NGL business complements our infrastructure investments, and the combination of the expertise and proprietary knowledge developed by our NGL marketing, supply, transportation and risk management professionals and our fleet of NGL transportation assets provides a competitive advantage over our competitors.
Our primary business objective is to increase the cash distributions that we pay to our unitholders by growing our investment in Inergy Midstream and, to a lesser extent, growing our Texas storage operations and NGL business. We intend to position Inergy Midstream to be able to increase its cash distributions by providing strong general partner support (including, if applicable, selling assets to Inergy Midstream) and using it as the primary vehicle through which we grow our midstream business. We expect to grow our Tres Palacios operations through development projects, such as the Copano header extension project, and we believe the facility's strategic location to the Eagle Ford shale play and interconnections with 10 interstate and intrastate pipelines will allow us to capture greater revenue opportunities as natural gas prices and volatility increase. We anticipate growing our NGL marketing, supply, and logistics business by continuing to leverage our industry knowledge, expertise and relationships to develop and harvest business opportunities and to expand our service offerings. We will continuously evaluate the best way to grow our company and unlock value for our unitholders.

Our business segments include (i) storage and transportation, which includes our Tres Palacios natural gas storage facility and our investment in Inergy Midstream, and (ii) NGL supply, marketing and logistics reporting segment, which includes our NGL business. The cash flows from our Tres Palacios facility are predominantly fee-based under one to three year contracts with creditworthy counterparties. The cash flows from our NGL supply, marketing and logistics operations represent sales to creditworthy customers typically under contracts that are less than one year in duration, and these cash flows tend to be seasonal in nature due to our customer profiles and their tendencies to purchase NGLs during peak winter periods.

As a result of our disposition of our retail propane operations, a majority of our distributable cash flows are expected to be generated by distributions received from Inergy Midstream and cash from operations generated by our Tres Palacios facility and NGL business. Our natural gas storage revenues are driven in large part by competition and demand for our storage capacity and deliverability, although demand for firm storage service in Texas remains depressed due to low natural gas prices and low seasonal spreads. Our NGL segment revenues are driven in large part by our ability to optimize NGL assets that we own or control, and provide services to producers, refiners and other customers which effectively provide flow assurance to our customers. These services offer customers certainty of NGL production and supply volumes flowing without interruption and at attractive economic value.

Our long-term profitability will be influenced primarily by (i) Inergy Midstream's ability to execute on its growth strategy, including both development projects and strategic acquisitions, and to increase cash available for distribution; (ii) our ability to execute growth strategies for our Tres Palacios facility and NGL business; (iii) our ability to contract and re-contract with customers; and (iv) our ability to manage increasingly difficult regulatory processes, particularly in permitting and approval proceedings at the federal and state levels.

With respect to market trends, the assets comprising our storage and transportation segment (including the infrastructure assets of Inergy Midstream) could be negatively affected in the long term by sustained downturns or sluggishness in the economy, which could affect long-term demand and market prices for natural gas and NGLs, all of which are beyond our control and could impair our ability to meet our long-term goals. At the same time, we believe that the contractual fee-based nature of these assets should help to reduce this risk. Development projects over the past few years have also been exposed to increased cost pressures associated with a shortage availability of skilled labor and the pricing of materials, even though we have seen some of these pressures begin to decrease in certain geographic areas. Moreover, although it has become more difficult to obtain the authorizations required to develop or expand natural gas and NGL infrastructure, we remain confident that the incremental time and money required to pursue and complete market-driven facilities will deliver meaningful value to our unitholders. The regulatory environment, combined with the location of our assets relative to both high-demand markets and prolific shale basins, effectively provides a significant barrier to entry that other market participants may find difficult to overcome.

Inergy Midstream

Inergy Midstream is a predominantly fee-based, growth-oriented limited partnership that develops, acquires, owns and operates midstream energy assets. It owns and operates natural gas and NGL storage and transportation facilities and a salt production business located in the Northeast region of the United States. Inergy Midstream owns and operates four natural gas storage facilities that have an aggregate working gas storage capacity of 41.0 Bcf; natural gas pipeline facilities with 905 MMcf/d of transportation capacity; a 1.5 million barrel NGL storage facility; and US Salt, a leading solution mining and salt production company.

Inergy Midstream's primary business objective is to increase the cash distributions that it pays to unitholders by growing its business through the development, acquisition and operation of additional midstream assets near production and demand centers. An integral part of its growth strategy is the continued development of Inergy Midstream's platform of interconnected natural gas assets in the Northeast that can be operated as an integrated storage and transportation hub. For example, because Inergy Midstream believes that storage and transportation customers value operating flexibility, it expects to increase the interconnectivity between its natural gas assets and third-party pipelines, thereby resulting in increased demand for its services. Its growth strategy is expected to reflect Inergy Midstream's desire to diversify its operations, in terms of both its geographic footprint and the type of midstream services it provides to customers.

Organic growth projects, including both expansions and greenfield development projects, have recently provided cost-effective options for Inergy Midstream to grow its infrastructure base. In general, purchasers of midstream infrastructure have paid relatively high prices (measured in terms of a multiple of EBITDA or another financial metric) to acquire midstream assets and operations in recent arms-length transactions. Although the prices paid for certain types of midstream assets are likely to remain robust for the foreseeable future, acquisitions will continue to permit Inergy Midstream to gain access to new markets (with respect to geographic footprint and product offerings) and develop the scale required to grow its business quickly and successfully. We therefore expect Inergy Midstream to grow its business in the near term through both organic growth projects and acquisitions.

Inergy Midstream's operations include (i) the storage and transportation of natural gas and NGLs, which are reported in its storage and transportation reporting segment, and (ii) US Salt's production and wholesale distribution of evaporated salt products, which are reported in its salt reporting segment. The cash flows from its storage and transportation operations are predominantly fee-based under one to ten year contracts with creditworthy counterparties and, therefore, are generally economically stable and not significantly affected in the short term by changing commodity prices, seasonality or weather fluctuations. The cash flows from its salt operations represent sales to creditworthy customers typically under contracts that are less than one year in duration, and these cash flows tend to be relatively stable and not subject to seasonal or cyclical variation due to the use of, and demand for salt products in everyday life.

The majority of Inergy Midstream's operating cash flows are generated by its natural gas storage operations. Its natural gas storage revenues are driven in large part by competition and demand for storage capacity and deliverability. Demand for storage in the Northeast is projected to continue to be strong, driven by a shortage in storage capacity and a higher than average annual growth in natural gas demand. This demand growth is primarily driven by the natural gas-fired electric generation sector and conversion from petroleum-based fuels. Due to the high percentage of its cash flows generated by its natural gas storage operations, Inergy Midstream has attempted to diversify its asset base recently by developing natural gas transportation assets and NGL storage assets. Its pending acquisition of Rangeland Energy also illustrates how Inergy Midstream expects to diversify its asset base through acquisitions.

Inergy Midstream's ability to market available transportation capacity is impacted by supply and demand for natural gas, competition from other pipelines, natural gas price volatility, the price differential between physical locations on its pipeline systems (basis spreads), economic conditions, and other factors. Its transportation facilities have benefited from, and Inergy Midstream expects its pipelines to continue to benefit from, the development of the Marcellus shale as a significant supply basin. As LDCs and other customers increasingly utilize short-haul transportation options to satisfy their transportation needs, the location of its transportation assets relative to the Marcellus shale will enable Inergy Midstream to realize additional benefits.

Inergy Midstream's long-term profitability will be influenced primarily by (i) successfully executing its existing development projects and continuing to develop new organic growth projects in its markets; (ii) pursuing strategic acquisitions from third parties, including us, to grow its business; (iii) contracting and re-contracting storage and transportation capacity with its customers; and (iv) managing increasingly difficult regulatory processes, particularly in permitting and approval proceedings at the federal and state levels.

We remain encouraged by Inergy Midstream's inventory of growth projects, such as the Watkins Glen NGL storage development project and the Commonwealth Pipeline project. These projects illustrate its diversification objectives, its desire to deploy capital prudently, its strong belief in the markets in which it operates, and its goal of integrating its assets when possible. Importantly, we also believe these projects demonstrate Inergy Midstream's commitment to its customers and their existing and forecast needs. In addition, many of its growth projects provide a basis for incremental growth, such as Inergy Midstream's ability to potentially expand the MARC I Pipeline through the installation of additional compression.

How We Evaluate Our Operations

We evaluate our business performance on the basis of the following key measures:

We do not utilize depreciation, depletion and amortization expense in our key measures because we focus our performance management on cash flow generation and our assets have long useful lives.

Fiscal 2012 Acquisitions and Dispositions

In November 2011, we completed the acquisition of substantially all of the assets of Papco, LLC/South Jersey Terminal, LLC (â€śPapcoâ€ť), located in Bridgeton, New Jersey. Papco provides transportation services to the NGL marketplace, mostly serving the East Coast, Midwest and Southeastern portions of the United States. South Jersey Terminal is a rail terminal facility with onsite product storage and truck loading operations. This acquisition provides our NGL business with a significant fleet of specialized transport vehicles and a strong presence in the Marcellus shale region, and allows us to increase our service offerings in the Eastern region of the United States.

In August 2012, we completed the acquisition of substantially all of the operating assets of Werner Transportation Services, Inc. (â€śWernerâ€ť), located in Gainesville, Georgia. Werner provides transportation services to the NGL marketplace primarily for customers east of the Mississippi River. This acquisition provides our NGL business with a strategic fleet of transport vehicles to help meet the increasing customer demand for hauling NGLs, notably in the Eastern region of the United States.

We acquired two retail propane businesses, one in January 2012 and one in February 2012, that were sold as part of our disposition of Inergy Propane to SPH in August 2012, as described below.

On August 1, 2012, we completed the disposition of our retail propane operations to SPH. We received approximately 14.2 million SPH common units with a market and book value of approximately $590 million, almost all of which we distributed to our unitholders in September 2012. SPH also exchanged approximately $1.19 billion of our outstanding senior notes for $1.0 billion of new SPH senior notes and paid cash directly to tendering note holders. In connection with the closing of this transaction, we entered into a support agreement with SPH pursuant to which we are obligated to provide contingent, residual support of approximately $497 million of aggregate principal amount of the 7Â˝% senior unsecured notes due 2018 of SPH and Suburban Energy Finance Corp. (collectively, the â€śSPH Issuersâ€ť) or any permitted refinancing thereof. Under the support agreement, in the event the SPH Issuers fail to pay any principal amount of the supported debt when due, we will pay directly to, or to the SPH Issuers for the benefit of, the holders of the Supported Debt (â€śHoldersâ€ť) an amount up to the principal amount of the supported debt that the SPH Issuers have failed to pay. We have no obligation to make a payment under the support agreement with respect to any accrued and unpaid interest or any redemption premium or other costs, fees, expenses, penalties, charges or other amounts of any kind whatsoever that shall be due to noteholders by the SPH Issuers, whether on or related to the supported debt or otherwise. The support agreement terminates on the earlier of the date the supported debt is extinguished or on the maturity date of supported debt or any permitted refinancing thereof.

Recent Developments

On November 3, 2012, Inergy Midstream entered into an agreement to acquire Rangeland Energy for $425 million, subject to certain performance goals and working capital adjustments. Rangeland Energy owns and operates the COLT Hub, which is an integrated crude oil rail and storage terminal located in the heart of the Bakken and Three Forks shale oil-producing region. The Colt Hub primarily consists of 720,000 barrels of crude oil storage, two 8,700-foot unit train rail loading loops, an eight-bay truck unloading rack, and 21-mile bi-directional crude oil pipeline that connects the terminal to crude oil gathering systems and crude oil interstate pipelines. The COLT Hub is capable of moving more than 120,000 barrels of crude oil per day by rail. We expect Inergy Midstream to complete the Rangeland Energy acquisition in calendar 2012.

Results of Operations

Fiscal Year Ended September 30, 2012 Compared to Fiscal Year Ended September 30, 2011

Volume. During the year ended September 30, 2012 , we sold 233.5 million retail gallons of propane, a decrease of 92.1 million gallons or 28.3% from the 325.6 million retail gallons sold during fiscal 2011 . Gallons sold during the year ended September 30, 2012 , decreased compared to the same prior year period primarily due to lower volumes sold at our existing locations of 93.0 million, partially offset by acquisition-related volume of 0.9 million. As indicated above, we sold our retail propane business to SPH effective August 1, 2012. As a result of this sale, gallons sold at existing locations reflected only ten months of operating activity during the year ended September 30, 2012 compared to twelve months for the prior year, which contributed an approximate 31.5 million gallon decline. For the remainder of the decline experienced during the year ended September 30, 2012 , we believe that retail propane gallon sales were impacted by several ongoing factors, including lower demand arising from above average temperatures, customer conservation, high commodity prices and customers switching to other suppliers or energy sources. The weather during the year ended September 30, 2012 was approximately 21% warmer than the prior year period and approximately 20% warmer than normal in our areas of operations. These warmer temperatures had a significant negative impact on retail propane gallons sold during the year ended September 30, 2012 . Additionally, although the average cost of propane has declined approximately 20% during the year ended September 30, 2012 compared to the prior year, the average wholesale cost of propane during our primary heating season from October to March 2012 increased approximately 2% compared to the same prior year period. We believe these higher costs during our primary heating season impacted customers' buying decisions and conservation trends, including customers seeking alternative sources of energy, such as electricity, wood burning and pellet burning stoves, since those sources can be more economical for the customer considering the higher cost of propane.

NGL marketing gallons delivered increased 108.8 million gallons, or 27.5% , to 504.3 million gallons in the year ended September 30, 2012 , from 395.5 million gallons in the year ended September 30, 2011 . This increase was driven primarily by (i) a 59.9 million gallon increase in Y-grade sales in the year ended September 30, 2012 as a result of increased production by the Caiman/Williams facility at Fort Beeler, West Virginia, noting that we marketed 100% of the production at this facility during the years ended September 30, 2012 and 2011; (ii) additional third party sales volumes to SPH after the close of the sale of the retail propane business to SPH, which accounted for an additional 21.7 million gallons in the year ended September 30, 2012 compared to the prior year period; and (iii) an increase in sales of 49.0 million gallons in the year ended September 30, 2012 specific to the Delaware City location, which was only operational for a portion of the prior year period. These increases were partially offset by lower volumes sold to existing customers primarily due to the warmer weather conditions in the year ended September 30, 2012 compared to the year ended September 30, 2011 as discussed above.

The total NGL gallons sold or processed by our West Coast NGL operations increased 93.3 million gallons, or 25.8% , to 455.6 million gallons during the year ended September 30, 2012 , from 362.3 million gallons during the prior year period. The increase was primarily attributable to higher throughput volumes processed as a result of operational expansion of the facility in fiscal 2012, which accounted for 64.1 million gallons of the increase. An additional 29.8 million gallons of isomerization gallons were processed in the year ended September 30, 2012 due to favorable market conditions and changes in contractual obligations from the prior year.

Our Tres Palacios storage facility was approximately 53% and 69% contracted on a firm basis (83% and 80% contracted on a firm and interruptible basis) during the years ended September 30, 2012 and 2011 , respectively. Additionally 100% of available capacity was sold at Inergy Midstream's Northeast natural gas facilities (Stagecoach, Steuben and Thomas Corners) on a firm basis, and the Bath NGL storage facility was approximately 100% contracted (for storage or forward sales). The Seneca Lake storage facility, which was acquired in July 2011, was approximately 72% and 59% contracted on a firm basis during the years ended September 30, 2012 and 2011 , respectively.

Revenues . Revenues for the year ended September 30, 2012 , were $2,006.8 million , a decrease of $147.0 million , or 6.8% , from $2,153.8 million during the same prior year period.

Revenues from retail sales were $777.3 million for the year ended September 30, 2012 , compared to $1,050.9 million during the year ended September 30, 2011 , a decrease of $273.6 million , or 26.0% . Retail propane revenues were $626.6 million in fiscal 2012 , a decrease of $232.0 million compared to $858.6 million in fiscal 2011 . This decrease was primarily due to a $245.2 million decline arising from lower retail propane volumes sold to existing customers as described above, partially offset by a $10.7 million increase due to a higher overall average selling price of propane and a $2.5 million increase resulting from acquisition-related retail propane sales. Approximately $81.2 million of the decrease attributable to lower volumes sold to existing customers resulted from the sale of our retail propane operations to SPH effective August 1, 2012. The overall average selling price of propane was higher than the same prior year period due to our ability to pass on to the customer at least a portion of the higher average wholesale cost of propane experienced during the primary heating season. Other retail sales, which primarily includes distillates, service, rental, and appliance sales, decreased $41.6 million to $150.7 million for the year ended September 30, 2012 from $192.3 million during the year ended September 30, 2011 . Revenue from other retail sales declined $43.6 million, mostly as a result of lower distillate volumes sold at existing locations, of which approximately $21.3 million resulted from the sale of our retail propane operations to SPH. This decline was partially offset by a $2.0 million increase in other retail revenues as a result of acquisitions.

Revenues from NGL marketing sales were $618.9 million for the year ended September 30, 2012 , an increase of $56.0 million , or 9.9% , from $562.9 million in the year ended September 30, 2011 . The increase can be attributed to greater volumes sold to existing and new customers, which contributed $154.8 million to the increase, partially offset by a $98.8 million decline due to a lower average sales price for commodities sold.

Revenues from L&L transportation sales were $58.5 million for the year ended September 30, 2012 , an increase of $38.6 million or 194.0% from $19.9 million during the year ended September 30, 2011 . This increase was primarily attributable to our acquisitions of the assets of Papco and Werner.

Revenues from our West Coast NGL operations were $313.7 million for the year ended September 30, 2012 , an increase of $4.0 million or 1.3% from $309.7 million during the year ended September 30, 2011 . West Coast facility revenues were $270.2 million for the year ended September 30, 2012 compared to $269.3 million in the prior year period, an increase of $0.9 million . This increase was primarily a result of increased throughput revenues as noted above, partially offset by lower commodity revenues resulting from lower commodity sales prices in fiscal 2012. West Coast propane revenues were $43.5 million for the year ended September 30, 2012 compared to $40.4 million for the prior year period, an increase of $3.1 million . These higher propane revenues were attributable to an increase of 8.3 million propane gallons sold at the West Coast facility for the year ended September 30, 2012, partially offset by lower sales price per gallon as a result of lower commodity costs.

Revenues from storage and pipeline transportation were $238.4 million for the year ended September 30, 2012 , an increase of $28.0 million or 13.3% from $210.4 million during the year ended September 30, 2011 . Revenues at our Tres Palacios facility increased $2.0 million primarily due to higher facility usage as a result of additional parking revenues. Inergy Midstream revenues increased $15.2 million primarily due to the placement into service of the North-South Facilities. Inergy Midstream's revenues also increased $8.4 million primarily due to additional demand for interruptible wheeling service as a result of customer demand to move gas to and from Inergy Midstream's interconnecting pipes primarily due to increasing natural gas development in Pennsylvania, and Inergy Midstream's acquisition of the Seneca Lake storage facility in July 2011 also increased revenue $6.5 million.

Cost of Product Sold. Cost of product sold for the year ended September 30, 2012 , was $1,396.2 million , a decrease of $79.8 million , or 5.4% , from $1,476.0 million during the year ended September 30, 2011 .

Retail cost of product sold was $438.8 million for the year ended September 30, 2012 , a decrease of $156.1 million , or 26.2% , when compared to $594.9 million for the year ended September 30, 2011 . Retail propane cost was $341.9 million in fiscal 2012 , a decrease of $129.9 million compared to $471.8 million in fiscal 2011 . This decline in retail propane cost of product sold was driven by a $134.4 million decrease resulting from lower volumes sold at existing locations, coupled with a $4.2 million decline due to a lower average per gallon cost of propane. These factors were partially offset by a $1.3 million increase due to acquisition-related sales, and a $7.4 million increase due to changes in non-cash charges on derivative contracts associated with retail propane fixed price sales contracts. The increase in non-cash charges on derivative contracts primarily relates to a $9.2 million non-cash gain recognized in the fourth quarter of 2012 related to certain derivative contracts entered into with SPH on the date of the close of the sale of our retail propane operations to SPH. These derivative contracts related to the procurement of propane at fixed prices to supply the propane necessary to satisfy fixed price sales contracts with retail customers that SPH acquired as part of their acquisition of our retail propane operations. We also have a related amount recorded as of September 30, 2012 as a loss in accumulated other comprehensive income related to derivative contracts that, prior to the sale of retail to SPH, were associated with our cash flow hedging activities related to fixed price sales to retail customers. The amount recorded in accumulated other comprehensive income as of September 30, 2012 is expected to be realized in earnings during the year ended September 30, 2013. Approximately $52.1 million of the decrease attributable to volumes sold at existing locations resulted from the sale of our retail propane operations to SPH effective August 1, 2012. Other retail cost of product sold was $96.9 million for the year ended September 30, 2012 , compared to $123.1 million during the year ended September 30, 2011 . This $26.2 million decrease was primarily due to a $27.8 million decline in the cost for distillates and other retail sales, partially offset by a $1.6 million increase from acquisitions. The decrease in the cost of product sold for distillates and other retail sales was driven by a $12.3 million decline due to the sale of our retail propane operations with the remainder of the decline due mostly to lower volumes of distillates sold at existing locations.

NGL marketing cost of product sold for the year ended September 30, 2012 , was $590.2 million , an increase of $58.3 million , or 11.0% , from NGL marketing cost of product sold of $531.9 million for the year ended September 30, 2011 . This increase was attributable to greater volumes sold to existing and new customers as noted above, which contributed $146.3 million to the increase, partially offset by an $88.0 million decrease due to a lower average purchase price as a result of lower commodity costs during the year ended September 30, 2012 compared to the prior year period.

Cost of product sold at our West Coast NGL operations was $281.1 million for the year ended September 30, 2012 , a decrease of $1.1 million or 0.4% from $282.2 million for the year ended September 30, 2011 . Cost of product sold for West Coast facility operations was $238.7 million for the year ended September 30, 2012 compared to $241.9 million for the prior year period, a decrease of $3.2 million . This decrease was primarily a result of lower average commodity prices and expected changes in types of NGLs sold, partially offset by higher throughput volumes processed. West Coast propane cost of product sold was $42.4 million for the year ended September 30, 2012 compared to $40.3 million for the prior year period, an increase of $2.1 million . This increase was attributable to increased volume sold as noted above, partially offset by lower commodity costs.

L&L transportation cost of product sold was $34.1 million for the year ended September 30, 2012 , an increase of $20.9 million or 158.3% from $13.2 million for the year ended September 30, 2011 . This increase was primarily attributable to our acquisitions of the assets of Papco and Werner.

Storage and pipeline transportation cost of product sold was $52.0 million for the year ended September 30, 2012 , a decrease of $1.8 million , or 3.3% , from $53.8 million for the year ended September 30, 2011 . Storage and pipeline transportation cost of product sold at our Tres Palacios facility increased $2.5 million primarily due to an increase in cavern lease payments year over year. Inergy Midstream's storage and pipeline transportation cost of product sold decreased $3.4 million as a result of insurance reimbursements related to the Stagecoach central compressor loss, and also decreased $3.7 million related to the costs incurred in the prior period associated with the Stagecoach central compressor loss. Additionally, Inergy Midstream's storage and pipeline transportation costs decreased by $1.6 million due to a decrease in leased transportation capacity held on a non-affiliated interconnecting pipeline. The above decreases in Inergy Midstream's storage and pipeline transportation costs were partially offset by a $3.9 million increase in storage related costs incurred as a result of placing the North/South Facilities into service in December 2011.

Our retail and NGL marketing cost of product sold consists primarily of tangible products sold including all propane, distillates and other NGLs sold and all propane-related appliances sold. Other costs incurred in conjunction with the distribution of these products are included in operating and administrative expenses and consist primarily of wages to delivery personnel, delivery vehicle costs consisting of fuel costs, repair and maintenance and lease expense. Costs associated with delivery vehicles approximated $63.9 million and $75.3 million for the years ended September 30, 2012 and 2011 , respectively. In addition, the depreciation expense associated with the delivery vehicles and customer tanks is reported within depreciation and amortization expense and amounted to $57.7 million and $69.9 million for the years ended September 30, 2012 and 2011 , respectively. Since we include these costs in our operating and administrative expense and depreciation and amortization expense rather than in cost of product sold, our results may not be comparable to other entities in our lines of business if they include these costs in cost of product sold.

Our storage and pipeline transportation cost of product sold consists primarily of commodity and transportation costs. Other costs incurred in conjunction with these services are included in operating and administrative expense and depreciation and amortization expense and consist primarily of depreciation, vehicle costs consisting of fuel costs and repair and maintenance and wages. Depreciation expense for storage and pipeline transportation services amounted to $70.5 million and $60.8 million for the year ended September 30, 2012 and 2011 , respectively. Vehicle costs and wages for personnel directly involved in providing storage and pipeline transportation services amounted to $4.6 million and $3.5 million for the year ended September 30, 2012 and 2011 , respectively. Since we include these costs in our operating and administrative expense and depreciation and amortization expense rather than in cost of product sold, our results may not be comparable to other entities in our lines of business if they include these costs in cost of product sold.

Gross Profit (Excluding Depreciation and Amortization). Gross profit for the year ended September 30, 2012 , was $610.6 million , a decrease of $67.2 million , or 9.9% , from $677.8 million during the year ended September 30, 2011 .

Retail gross profit was $338.5 million for the year ended September 30, 2012 , compared to $456.0 million for the year ended September 30, 2011 , a decrease of $117.5 million , or 25.8% . Retail propane gross profit was $284.7 million in fiscal 2012 , a decrease of $102.1 million compared to $386.8 million in fiscal 2011 . This decrease was mostly due to a $110.8 million decline attributable to lower volumes sold at existing locations, coupled with a $7.4 million decline due to changes in non-cash charges on derivative contracts associated with retail propane fixed price sales contracts. Approximately $29.1 million of the decline from lower volumes sold at existing locations resulted from the sale of our retail propane operations to SPH effective August, 1, 2012. These factors were partially offset by an increase in retail gross profit of $14.9 million resulting from a higher cash margin per gallon and a $1.2 million increase associated with acquisitions. Other retail gross profit was $53.8 million for the year ended September 30, 2012 , compared to $69.2 million for the year ended September 30, 2011 . This $15.4 million decrease was due primarily to a decline in gross profit from distillate and other retail sales of $15.8 million, partially offset by an increase of $0.4 million arising from acquisition-related gross profit. Gross profit from distillate and other retail sales declined mostly due to lower volumes sold at our existing locations, approximately $9.0 million of which resulted from the sale of our retail propane operations.

NGL marketing gross profit was $28.7 million for the year ended September 30, 2012 , compared to $31.0 million for the year ended September 30, 2011 , a decrease of $2.3 million , or 7.4% . This decrease resulted from lower margins on volumes sold to new and existing customers.

L&L transportation gross profit was $24.4 million for the year ended September 30, 2012 , an increase of $17.7 million or 264.2% from $6.7 million during the year ended September 30, 2011 . This increase was primarily attributable to our acquisitions of the assets of Papco and Werner.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview

We are a publicly-traded master limited partnership (â€śMLPâ€ť) that manages, owns and operates crude oil, natural gas and NGL midstream assets and operations. Headquartered in Houston, Texas, we are a fully-integrated midstream solution provider that specializes in connecting shale-based energy supplies to key demand markets. Prior to the Crestwood Merger, we managed and conducted a substantial portion of our operations through two growth-oriented, publicly-traded MLPs: (i) Inergy Midstream, which owned and operated storage and transportation assets located in North Dakota and the Northeast region of the United States, and (ii) Legacy CMLP, which owned and operated gathering and processing assets located in multiple shale plays across the United States. Following the Crestwood Merger, we now manage and conduct a substantial portion of our operations through Crestwood Midstream. We own the general partnership interest and IDRs of Crestwood Midstream.

Strategic Business Combination

As described previously, we recently completed a series of related transactions that have combined and consolidated the management and operations of the Company, Inergy Midstream and Legacy Crestwood. We believe that this strategic combination, together with the divestiture of our retail propane operations in 2012, enhances our position as a pure play midstream company poised for growth. We anticipate that this combination will, among other things, produce commercial synergies that enable us to significantly expand the mix of midstream services that we are able to offer our customers; diversify our cash flows and asset base; provide the scale necessary to accelerate opportunities to reduce leverage and improve creditworthiness; and provide the scale necessary to better take advantage of growth opportunities, in terms of both organic growth projects and third-party acquisitions.

Our Company

We are a growth-oriented midstream energy company that offers customer solutions across the crude oil, NGL and natural gas sector of the energy value chain. Our midstream infrastructure is geographically located in or near significant supply basins, particularly developing unconventional shale plays, across the United States. In general, we own or control:
â€˘
natural gas facilities with more than 2,160 MMcf/d of gathering capacity, 460 MMcf/d of processing capacity, 80 Bcf of working gas storage capacity, and 0.9 Bcf/d of transmission capacity;
â€˘
NGL facilities with more than 12,000 Bbls/d of fractionation capacity and 2.6 million barrels of storage capacity; and
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crude oil facilities with more than 120,000 Bbls/d of rail loading capacity and 720,000 gallons of storage capacity.

Our primary business objective is to increase the cash distributions that we pay to our unitholders. We expect to position Crestwood Midstream to increase its cash distributions by providing strong general partner support and using Crestwood Midstream as the primary vehicle through which we grow our midstream business. We intend to grow our NGL and crude services business by leveraging our industry knowledge, expertise and relationships with Legacy CMLPâ€™s relationships and operational experience to offer unparalleled takeaway solutions from the wellhead to the end user.
Our three business segments include (i) gathering and processing, which comprises the G&P operations of Legacy CMLP; (ii) NGL and crude services, which provides NGL and crude oil marketing, supply and logistics services to producers, refiners, petrochemical companies, marketers, and others that effectively provide flow assurances to our customers, as well as the production and sale of salt products and NGL storage; and (iii) storage and transportation, which provides natural gas storage and transportation services to third parties.

â€˘
Marcellus Shale . We own and operate (i) a low-pressure natural gas gathering system with a gathering capacity of approximately 420 MMcf/d of rich gas produced by our customers in Harrison and Doddridge Counties, West Virginia, and (ii) four compression and dehydration stations located on our gathering systems in Harrison County, West Virginia;

â€˘
Barnett Shale. We own and operate (i) a low-pressure natural gas gathering system with a gathering capacity of approximately 955 MMcf/d of rich gas produced by our customers in Hood, Somervell and Johnson Counties, Texas, and delivers the rich gas to our two processing plants where NGLs are extracted from the natural gas stream; and (ii) low-pressure gathering systems with a gathering capacity of 530 MMcf/d of dry natural gas produced by our customers in Tarrant and Denton Counties, Texas;

â€˘
Fayetteville Shale . We own and operate five low-pressure gas gathering systems with a gathering capacity of approximately 510 MMcf/d of dry natural gas produced by our customers in Conway, Faulkner, Van Buren, and White Counties, Arkansas;

â€˘
Granite Wash . We own and operate a low-pressure natural gas gathering system with a gathering capacity of approximately 36 MMcf/d of rich gas produced by our customers in Roberts County, Texas, and a processing plant that extracts NGLs from the natural gas stream;

â€˘
Avalon Shale/Bone Spring . We own and operate three low-pressure natural gas gathering systems with a gathering capacity of approximately 50 MMcf/d of rich gas produced by our customers in Eddy County, New Mexico; and

â€˘
Haynesville/Bossier Shale . We own and operate high-pressure natural gas gathering pipelines with a gathering capacity of approximately 100 MMcf/d that provide gathering and treating services to our customers located in Sabine Parish, Louisiana.

The cash flows from our G&P operations are predominantly fee-based with creditworthy counterparties under contracts with terms that vary, the longest of which expires in 2042. The results of our G&P operations are significantly influenced by the volumes of natural gas gathered and processed through our systems. We gather, process, treat, compress, transport and sell natural gas pursuant to fixed-fee and to a lesser extent percent-of-proceeds contracts. We do not take title to natural gas or NGLs under our fixed-fee contracts, whereas under our percent-of-proceeds contracts, we take title to the residue gas, NGLs and condensate and remit a portion of the sale proceeds to the producer based on prevailing commodity prices. Our election to enter primarily into fixed-fee contracts minimizes our G&P segment's commodity price exposure and provides us more stable operating performance and cash flows.

Our two largest G&P customers are Quicksilver Resources Inc. (â€śQuicksilverâ€ť) and Antero Resources Appalachian Corporation (â€śAnteroâ€ť). For the nine months ended September 30, 2013 , services provided to Quicksilver and Antero accounted for approximately 12% and 7% of our total revenues.

In July 2013, we acquired through Crestwood Niobrara a 50% interest in a gathering system located in the Powder River Basin Niobrara Shale play for approximately $107.5 million. This system is comprised of approximately 100 miles of gathering pipelines located in Converse County, Wyoming. The system is being developed to gather and process rich natural gas produced from a 311,000 gross acres area of dedication from Chesapeake Energy Corporation and RKI. Crestwood Niobrara is a consolidated subsidiary of Crestwood Midstream, which accounts for Crestwood Niobraraâ€™s 50% interest in Jackalope as an equity investment.

NGL and Crude Services

Our NGL and crude services segment consists of our proprietary NGL business, our COLT Hub and US Salt. Our team utilizes assets we own or control to provide services to producers, refiners and other customers which effectively provide flow assurance to our customers. These services offer customers certainty of NGL and crude oil supply volumes flowing without interruption and at attractive economic value.

Our NGL and crude services business optimizes assets that we own or control, including among others (i) our West Coast processing, fractionation and storage operations, which includes 24 million gallon of NGL storage capacity, a 25 MMcf/day of natural gas processing capacity, 12,000 Bbls/d of fractionation capacity, 8,000 Bbls/d of butane isomerization capacity, and NGL rail and truck loading; (ii) our NGL storage facility in Seymour, Indiana, which has 21 million gallons of underground NGL storage capacity and 1.2 million gallons of aboveground â€śbulletâ€ť storage capacity; (iii) Bath, a 1.5 million barrel NGL storage facility located near Bath, New York; and (iv) our fleet of rail and rolling stock, terminals and maintenance facilities.

The COLT Hub is a crude oil terminal strategically located near the town of Epping in Williams County, North Dakota, in the heart of the Bakken and Three Forks shale oil-producing areas. With 720,000 barrels of crude oil storage and two rail loops, the terminal can accommodate 120-car unit trains and is capable of loading up to 120,000 Bbls/d by rail. Customers can source product via gathering systems, a truck unloading rack and the COLT Connector, a 21-mile, 10-inch bidirectional pipeline that connects the COLT Hub to the Enbridge and Tesoro crude pipelines at Dry Fork (Beaver Lodge/Ramberg junction). The COLT Hub is connected to the Banner, Meadowlark Midstream (formerly, Bear Tracker Energy) and Hiland Pipeline crude gathering systems.

In May 2013, we commenced construction of an expansion of our COLT Hub that will increase our crude oil throughput and storage capacities. The expansion primarily entails the installation of additional crude oil loading arms and pumps at our rail loading rack; the construction of parallel rail tracks on which we will be able to store additional unit trains; the construction of two floating-roof crude oil storage tanks; the construction of additional truck unloading racks; and, modifications that will enable us to receive more crude oil from interconnected gathering systems. The expansion is designed to increase our unit train loading capacity to 160,000 Bbls/d, our truck unloading capacity to 96,000 Bbls/d, our working storage capacity to 1.08 million barrels, and our input capacity from third-party gathering systems to more than 100,000 Bbls/d.

In addition, our NGL and crude services segment includes US Salt, a solution mined salt production facility located on the shores of Seneca Lake outside of Watkins Glen, New York. The solution mining process used by US Salt creates salt caverns that can be developed into usable natural gas and NGL storage capacity.

In October, our wholly-owned subsidiary, Crestwood Arrow Acquisition LLC, entered into an agreement to acquire Arrow Midstream Holdings, LLC ("Arrow"), a privately-held midstream company, for approximately $750 million. Arrow, through its wholly-owned subsidiaries, owns and operates substantial crude oil, natural gas and water gathering systems located on the Fort Berthold Indian Reservation in the core of the Bakken Shale in McKenzie and Dunn Counties, North Dakota. Currently, the system consists of over 460 miles of gathering pipeline including 150 miles of crude oil gathering pipeline, 160 miles of natural gas gathering pipeline and 150 miles of water gathering lines. Arrowâ€™s revenues are generated pursuant to long-term, primarily fee-based, gathering contracts with creditworthy customers. Arrowâ€™s systems have direct connectivity with our COLT Hub. The Arrow systems are currently being expanded to increase gathering capacities to 125,000 Bbls/d of crude oil, 100 MMcf/d of natural gas, and 40,000 Bbls/d of produced water.

The cash flows from our NGL and crude services business represent sales to creditworthy customers typically under contracts that are less than one year in duration, and these cash flows tend to be seasonal in nature due to our customer profiles and their tendencies to purchase NGLs during peak winter periods. The cash flows from our COLT Hub are predominantly fee-based with creditworthy counterparties under three to five year contracts, and are generally economically stable and not significantly affected in the short term by changing commodity prices, seasonality or weather fluctuations. The cash flows from our salt operations represent sales to creditworthy customers typically under contracts that are less than one year in duration, and these cash flows tend to be relatively stable and not subject to seasonal or cyclical variation due to the use of, and demand for salt products in everyday life.

Storage & Transportation

Our storage and transportation segment includes five natural gas storage facilities, including: (i) Stagecoach, a 26.25 Bcf multi-cycle depleted reservoir natural gas storage facility located approximately 150 miles northwest of New York City in Tioga County, New York and Bradford County, Pennsylvania; (ii) Thomas Corners, a 7.0 Bcf multi-cycle depleted reservoir natural gas storage facility located in Steuben County, New York; (iii) Steuben, a 6.2 Bcf single-turn depleted reservoir natural gas storage facility located in Steuben County, New York; (iv) Seneca Lake, a 1.45 Bcf multi-cycle bedded salt natural gas storage facility located in Schuyler County, New York; and (v) Tres Palacios, a 38.4 Bcf high-performance multi-cycle natural gas storage facility located in Matagorda and Wharton Counties, Texas, with an extensive header system connected to 10 interstate and intrastate pipelines and Kinder Morgan's (formerly, Copano's) Houston Central processing plant.

Our storage and transportation segment includes three natural gas transmission facilities, including (i) the compression and appurtenant facilities installed by CNYOG to expand transportation capacity on the Stagecoach north and south laterals (the â€śNorth-South Facilitiesâ€ť), which provide 325 MMcf/d of firm interstate transportation service to shippers; (ii) the MARC I Pipeline, a 39-mile, 30-inch interstate natural gas pipeline that extends from the Stagecoach south lateral interconnect with TGP's 300 Line and Transco's Leidy Line, and capable of providing 550 MMcf/d of firm transportation service to shippers; and (iii) the East Pipeline, a 37.5-mile, 12-inch diameter intrastate natural gas pipeline in New York.

The cash flows from our storage operations are predominantly fee-based with creditworthy counterparties under one to ten year contracts (Northeast storage and transportation) or one to three year contracts (Tres Palacios), and the cash flows from our transportation operations are predominantly fee-based with creditworthy counterparties under five to ten year contracts.

Outlook and Trends

Our long-term profitability will be influenced primarily by our ability to (and to cause Crestwood Midstream to) execute our growth strategy, including both growth projects and strategic acquisitions, and to increase cash available for distribution from the assets we own or control. An integral part of our growth strategy entails extracting commercial synergies from the Crestwood Merger, such as combining Legacy CMLP's G&P experience with the Companyâ€™s NGL and crude services businesses to achieve commercial opportunities that were not available to us prior to the business combination. The integration of our gathering, processing, marketing, storage and transportation experience will be instrumental to our ability to derive such commercial synergies.

Organic growth projects, including both expansions and greenfield development projects, have recently provided cost-effective options for Crestwood Midstream to grow its infrastructure base. The ongoing expansion of the COLT Hub and continued build out of our Marcellus Shale rich gas gathering systems are examples of our ability to internally grow our operations at very low multiples. In general, purchasers of energy infrastructure have paid relatively high prices (measured in terms of a multiple of EBITDA or another financial metric) to acquire midstream assets and operations in recent arms-length transactions. Although the prices paid for certain types of midstream assets are likely to remain robust for the foreseeable future, acquisitions will continue to permit us to gain access to new markets (with respect to geographic footprint and product offerings) and develop the scale required to grow our businesses quickly and successfully. Our recent Jackalope G&P investment and the pending Arrow acquisition are examples of where we believe we can cost-effectively accelerate growth through third-party acquisitions. We therefore expect to grow our business in the near term through both organic growth projects and acquisitions.

Our long-term profitability will also depend on our ability to contract and re-contract with customers and to manage increasingly difficult regulatory processes at the federal, state and local levels. The time required to secure the authorizations necessary for development projects and expansions, for both unregulated and regulated projects, and the amounts we pay to secure authorizations and land rights are increasing in most markets in which we participate. However, we remain confident that the incremental time and money required to pursue and complete market-driven facilities will deliver meaningful value to our unitholders, as the combination of the ongoing regulatory climate and the location of our assets relative to both high-demand markets and prolific shale basins effectively provides a significant barrier to entry that other market participants may find difficult to overcome.

Our natural gas storage revenues are driven in large part by competition and demand for our storage capacity and deliverability. Demand for storage in the Northeast is projected to continue to be strong, driven by a shortage in storage capacity and a higher than average annual growth in natural gas demand. Demand for firm storage service in Texas remains depressed due to low commodity prices, an abundance of Gulf Coast storage capacity, and low seasonal spreads. As of September 30, 2013 , we are optimizing approximately 23.9 Bcf of working gas storage capacity available at Tres Palacios through hub and interruptible services. We continue to explore ways to optimize Tres Palacios and reduce associated costs through this trough of the commodity cycle.

How We Evaluate Our Operations

We evaluate our overall business performance based primarily on EBITDA and Adjusted EBITDA. We previously evaluated the performance of our individual segments based on gross profit (which we defined as operating revenues less product purchases). As a result of Crestwood Holdingsâ€™ acquisition of the owner of our general partner on June 19, 2013 and the integration of our Crestwood Midstream operations, we now assess the performance of our individual segments based on EBITDA. In addition, in the quarter ended September 30, 2013, we moved the results of our US Salt facility operations and our Bath NGL storage facility operations to the NGL and crude services segment from the storage and transportation segment. We evaluate our ability to make distributions to our unitholders based on cash available for distribution and distributions received from Crestwood Midstream.

We do not utilize depreciation, depletion and amortization expense in our key measures because we focus our performance management on cash flow generation and our assets have long useful lives.

EBITDA and Adjusted EBITDA - We believe that EBITDA and Adjusted EBITDA are widely accepted financial indicators of a company's operational performance and its ability to incur and service debt, fund capital expenditures and make distributions. EBITDA is defined as income before income taxes, plus net interest and debt expense, and depreciation, amortization and accretion expense. In addition, Adjusted EBITDA considers the impact of certain significant items, such as the gain or loss on economically hedged transactions not designated as hedges for accounting purposes, long-term incentive and equity compensation expenses, gain on contingent consideration, gain on the sale of assets, goodwill impairment and third party costs incurred related to potential and completed acquisitions, settlement of certain litigations, and other transactions identified in a specific reporting period. EBITDA and Adjusted EBITDA are not measures calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), as they do not include deductions for items such as depreciation, amortization and accretion, interest and income taxes, which are necessary to maintain our business. EBITDA and Adjusted EBITDA should not be considered an alternative to net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP. EBITDA and Adjusted EBITDA calculations may vary among entities, so our computation may not be comparable to measures used by other companies.

Results of Operations

Segment Results

Below is a discussion of the factors that impacted EBITDA by segment for the three and nine months ended September 30, 2013 compared to the same periods in 2012 .

Gathering and Processing:

EBITDA for our gathering and processing segment for the three and nine months ended September 30, 2013 increased by $1.4 million and $11.5 million over the same periods in 2012 . The increase was primarily due to an increase in gathering volumes in 2013 as compared to 2012 , which was primarily driven by the acquisition of assets from Antero, Devon and Enerven in March 2012, August 2012 and December 2012, respectively.

Operations . For the three months ended September 30, 2013 , we gathered 91.3 Bcf of natural gas compared to 82.1 Bcf of natural gas during the same period in 2012 . For the nine months ended September 30, 2013 , we gathered 269.4 Bcf of natural gas compared to 212.2 Bcf of natural gas during the same period in 2012 . This increase was primarily due to our gathering assets in the Marcellus shale, which gathered 47% more volumes during the second quarter of 2013 compared to 2012. Our capital projects and acquisitions in the Marcellus shale have significantly increased the capacity of our assets in the region, which has capitalized on increased producer activity.

Other. During the three months ended September 30, 2013 , we recorded a gain of $4.4 million on the sale of a cryogenic plant and associated equipment, which was partially offset by a $4.1 million impairment of our goodwill on our Haynesville/Bossier Shale operations as a result of a decrease in anticipated revenues to be generated from those operations due primarily to our inability to renew and extend a significant revenue contract that expired in mid-2013. During the nine months ended September 30, 2012 , we recognized a gain on the reversal of a liability related to contingent consideration potentially payable to Quicksilver Resources, Inc.

On July 19, 2013, one of our consolidated subsidiaries acquired a 50% interest in a gathering system located in the Niobrara shale for $107.5 million. During the three months ended September 30, 2013 , we recorded our proportionate share of the systemâ€™s operations, which gathered approximately 60 MMcf/d of natural gas, which was partially offset by approximately $1.0 million of depreciation and amortization related to our investment.

NGL and Crude Services:

Our NGL and crude services segment reflects only the results of our operations from June 19, 2013 (i.e., the date that Crestwood Holdings acquired control of our general partner) to September 30, 2013 . Accordingly, the following discusses the results of operations of our NGL and crude services segment for the three months ended September 30, 2013 .

Our NGL and crude services segmentâ€™s EBITDA was driven primarily by our Colt Hub crude oil terminal in the Bakken Shale, which contributed $8.6 million of the segmentâ€™s EBITDA during the three months ended September 30, 2013 . We have entered into contracts with several customers to provide additional rail, trucking and storage services starting in the fourth quarter of 2013, which we believe will positively contribute to the EBITDA generated by the Colt Hub terminal in the future.

Our other NGL and crude businesses performed consistently during the three months ended September 30, 2013 . On October 8, 2013, we announced that we entered into an agreement to acquire Arrow Midstream Holdings, LLC, which owns substantial crude oil, natural gas and water gathering systems located in the Bakken Shale, and we anticipate that this acquisition will close in November 2013. We believe that these operations will contribute additional EBITDA in the future to our NGL and crude services segment through its core crude, natural gas and water gathering services but also by enhancing the services provided by our Colt Hub crude oil terminal and our other NGL and crude businesses.

Storage and Transportation:

Our storage and transportation segment reflects only the results of our operations from June 19, 2013 (i.e., the date that Crestwood Holdings acquired control of our general partner) to September 30, 2013 . Accordingly, the following discusses the results of operations of our storage and transportation segment for the three months ended September 30, 2013 .

Our storage and transportation segmentâ€™s EBITDA was driven primarily by our Stagecoach natural gas storage facility and our MARC I pipeline, which contributed $27.6 million of the segmentâ€™s EBITDA during the three months ended September 30, 2013 . The EBITDA from our Stagecoach facilities continues to benefit from interruptible wheeling services, which continue to see strong demand from producers and other customers given widening transportation basis spreads in the region. Our MARC I pipeline also has experienced favorable revenues from its interruptible services as well, given continued demand for transportation capacity in the region.

EBITDA for the three and nine months ended September 30, 2013 was $70.8 million and $144.7 million , an increase of $35.6 million and $44.6 million compared to same periods in 2012 . In the same manner, Adjusted EBITDA for the three and nine months ended September 30, 2013 was $99.9 million and $187.1 million , an increase of $63.2 million and $89.0 million compared to the same periods in 2012 . Below is a discussion of items impacting our EBITDA that are not included in our segment results described above.

Operating and Administrative Expense - During the three and nine months ended September 30, 2013 , operating and administrative expense increased by $48.8 million and $66.2 million when compared to the same periods in 2012 . The increase was due primarily to the assets acquired from Antero, Devon and Enerven during 2012. Also contributing to the increase was approximately $12.1 million and $19.5 million of legal and other consulting expenses we incurred to evaluate certain transaction opportunities during the three and nine months ended September 30, 2013 , respectively.

Also impacting our general and administrative expenses for the three and nine months ended September 30, 2013 were increases in payroll and related benefit costs, which reflects the increased scope of our business operations compared to the same periods in 2012 . We incurred an increase of $5.1 million and $6.1 million of expense related to our long-term incentive and equity compensation plans during the three and nine months ended September 30, 2013 , respectively.

Items not affecting EBITDA include the following:

Depreciation, Amortization and Accretion Expense - During the three and nine months ended September 30, 2013 , our depreciation, amortization and accretion expense increased primarily due to the assets acquired from Antero, Devon and Enerven during 2012. In addition, we recorded approximately $40.0 million of depreciation and amortization expense related to our NGL and crude and storage and transportation segments from June 19, 2013 (the date that Crestwood Holdings acquired control of our general partner) to September 30, 2013, which contributed to our increase period over period.

Interest and Debt Expense - Interest and debt expense increased for the three and nine months ended September 30, 2013 compared to the same periods in 2012 , primarily due to (i) higher outstanding balances on our credit facilities, net of repayments and (ii) the issuance of an additional $150 million of 7.75% Senior Notes in November 2012.

Liquidity and Sources of Capital

We believe that anticipated cash from operations, cash distributions from Crestwood Midstream and borrowing capacity under our credit facilities will be sufficient to meet our liquidity needs for the foreseeable future. Moreover, given that a substantial portion of our consolidated assets are conducted through Crestwood Midstream, we do not anticipate the need to raise additional capital in the foreseeable future. However, if our plans or assumptions change or are inaccurate, or we make acquisitions, we may need to raise additional capital. Although global financial markets and economic conditions have improved more recently, to the extent we need to raise additional capital, we cannot provide assurances that we will be able to raise the additional capital to meet these needs.

Contemporaneously with the closing of the Crestwood Merger, Crestwood Midstream entered into a new $1 billion five-year senior secured credit facility with a syndicate of financial institutions. We believe this facility is sized sufficiently to fund the combined organization's growth plans and working capital needs. Crestwood Midstream borrowed funds under the new revolving credit facility (i) to repay in full and retire the NRGM Credit Facility, the Legacy CMLP Credit Facility, and the CMM Credit Facility; and (ii) to pay fees and expenses relating to the merger and related transactions. From time to time thereafter, Crestwood Midstream may borrow funds under the new revolving credit facility for general partnership purposes, including acquisitions. Subject to limited exception, the new credit facility is secured by substantially all of the equity interests and assets of Crestwood Midstream's subsidiaries, and is jointly and severally guaranteed by substantially all of Crestwood Midstream's subsidiaries.

Operating Activities

During the three and nine months ended September 30, 2013 , we experienced an increase in our operating revenues compared to the same period in 2012 primarily due to (i) asset acquisitions during 2012; and (ii) revenues of approximately $403.9 million related to our NGL and crude and storage and transportation segments from June 19, 2013 (the date that Crestwood Holdings acquired control of our general partner) to September 30, 2013. Partially offsetting these increases in operating revenues was higher operating and administrative expenses and costs of products sold. In addition, our interest costs increased due to higher outstanding balances on our credit facilities.

Investing Activities

The midstream energy business is capital intensive, requiring significant investments for the acquisition or development of new facilities. We categorize our capital expenditures as either:

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expansion capital expenditures, which are made to construct additional assets, expand and upgrade existing systems, or acquire additional assets; or

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maintenance capital expenditures, which are made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets, extend their useful lives or comply with regulatory requirements.

In July 2013, Crestwood Niobrara paid $107.5 million to acquire a 50% interest in a gathering system located in the Powder River Basin of the Niobrara play from RKI. In addition, during the three months ended September 30, 2013, Legacy Crestwood paid an additional $20.6 million to Jackalope to fund its construction projects. During the nine months ended September 30, 2012, Legacy CMLP paid $469.0 million to acquire assets from Antero and Devon.